In the final days of the Obama administration, the National Economic Council published a much-awaited white paper — entitled “A Framework for FinTech” — recommending guiding principles for the advancement of the fintech industry by the U.S. government.
The NEC recognized that fintech innovations “have the potential to fundamentally change the financial services industry and the wider economy.” The NEC added that to “achieve its full potential, however, stakeholders must learn from the experiences of the financial crisis and collaborate to orient products and services toward broader objectives that benefit consumers, markets, and the economy” with the principles serving as a guide for sustained engagement by all stakeholders.
The white paper was published on Sunday, Jan. 12, a release date that likely will undercut the document’s utility, as its authors were then preparing to pack up their offices and leave, with the Trump administration moving in less than a week later. The Obama team had years to develop a fintech-related policy. One must wonder if the completion of this paper — as the administration was on its way out — was nothing more than a symbolic gesture.
The document was well-researched and will hopefully be studied and followed by the Trump administration, legislators, regulators and the broader fintech industry, but a bigger lesson must be learned from the timing of the release of this report.
Since the early days of the Obama administration, many fintech innovators considered the then-freshly-elected, post-2008-financial-crisis government a willing and able partner to rethink and rebuild the regulatory framework of the broader financial services sector. Innovators advocated for changes that would promote financial services innovation while protecting consumers, small businesses and the economy. I was one of them.
We engaged advisors to the administration, wrote in-depth position papers, lobbied lawmakers, testified before congressional committees, visited the White House, and attended roundtable sessions at the Treasury Department and the banking regulators.
It was a lot of fun. The photo ops were memorable. But nothing really got done.
In late 2011, a fintech startup CEO told me that fintech founders should focus on their business models and customer acquisition and not waste time in the nation’s capital. Those comments stuck with me and echoed loudly during the final hours of the Obama administration.
On the policy change front, our industry’s collective efforts from 2009 to 2016 were not completely for naught. The Jumpstart Our Business Startup (JOBS) Act, signed into law in 2012, opened the door for more crowdfunding. The Consumer Financial Protection Bureau provided some limited latitude for startups to operate without fear of regulatory crackdown. The Office of the Comptroller of the Currency proposed its fintech charter.
But this was not the change and leveling-of-the-playing-field that many innovators wanted so that we could launch new products and compete with “too big to fail” incumbents.
The OCC has yet actually to approve a fintech charter. Regulators have so far failed to implement a faster or same-day payments model, as well as a sandbox to soothe innovators’ fear of conflicting with existing laws. Some regulatory controls and compliance measures were even tightened and a number of early-stage fintech companies were sanctioned by regulators.
Notwithstanding the limited progress in Washington, we achieved a lot when we left the Beltway, refocused and returned to our business plans and our customers. During the Obama years, entrepreneurs received $25.2 billion in venture financing and launched 3,319 fintech companies, according to CB Insights data. They created jobs, enabled consumers’ economic advancement, aided small business growth and contributed to the overall U.S. economy.
Most notably, they did this all within the status quo of legislation and regulation. They weren’t encumbered by the lack of change, and most realized that the happy path to business success in a regulated industry is to follow the law. Some didn’t, and were firmly reminded that innovation is not an excuse for non-compliance. Just last year, when the CFPB issued an enforcement action against an online lender, agency Director Richard Corday summed up the status quo, stating, “The CFPB supports innovation in the FinTech space, but start-ups are just like established companies in that they must treat consumers fairly and comply with the law."
Today, the NEC’s white paper has all but disappeared. It’s been relegated to the online archives of the Obama White House with no trace of it at whitehouse.gov. New NEC and White House staffers likely have no knowledge of the white paper. To fulfill President Trump’s promise to “Make America Wealthy Again,” the new administration will likely kick off the same process of listening, lobbying and research that President Obama initiated eight years ago.
My humble request to new administration is: Please don’t bother. Please don’t distract entrepreneurs and innovators from their jobs and goals. The research has been done and the learnings are well-documented. Search the archives.
Instead, please focus on making it easier and simpler for fintech entrepreneurs to understand and comply with our laws, to launch and operate businesses unencumbered by thoughtless red tape, and to pursue their own American dream by working smart and hard on level playing fields. And let the innovators focus on innovation.
Ryan Gilbert is a general partner with Propel Venture Partners in San Francisco, Calif.